Stellar PLC

You are the senior accountant for Stellar PLC, a company that sells specialized electronic equipment. The bookkeeper has prepared the following trial balance for the year ended 31 December 2023.

Stellar PLC - Trial Balance as at 31 December 2023

Account	Debit (€)	Credit (€)
Revenue		1,250,000
Cost of Sales	720,000
Administrative Expenses	185,000
Distribution Costs	95,000
Land (at cost)	200,000
Buildings (at cost)	400,000
Plant & Machinery (at cost)	150,000
Accumulated Depreciation - Buildings (at 1 Jan 2023)		80,000
Accumulated Depreciation - Plant & Machinery (at 1 Jan 2023)		45,000
Inventory (at 31 Dec 2023)	115,000
Trade Receivables	160,000
Provision for Doubtful Debts (at 1 Jan 2023)		5,000
Bank	42,000
Trade Payables		124,000
5% Bank Loan		150,000
Share Capital (€1 ordinary shares)		300,000
Retained Earnings (at 1 Jan 2023)		113,000
Total	2,067,000	2,067,000

Additional Information:

The following matters need to be taken into account:

1. Property, Plant, and Equipment (PPE): 

   • Buildings are depreciated at 5% per annum on a straight-line basis. On 31 December 2023, after accounting for the year's depreciation, the company's buildings were professionally revalued to €350,000. This is the first revaluation for this asset.

   • Plant & Machinery is depreciated at 20% per annum using the reducing balance method.

   • All depreciation expenses are to be charged to 'Administrative Expenses'.

     
     

2. Inventory:

   • Included in the closing inventory figure of €115,000 is a batch of products that cost €15,000. Due to a design flaw, these products can now only be sold for €11,000 after incurring selling costs of €1,000.

     
     

3. Trade Receivables: 

   • A specific customer owing €4,000 has been declared bankrupt, and the debt is irrecoverable.

   • The company has decided to set the general provision for doubtful debts to 5% of the remaining trade receivables.

   • Bad and doubtful debt expenses are charged to 'Distribution Costs'.

     
     

4. Revenue:

   • On 28 December 2023, Stellar PLC sent goods to a customer on a 'sale or return' basis. The company had invoiced the customer for €12,000 and recorded it as a sale. The cost of these goods was €8,000. The customer has until 15 January 2024 to decide whether to accept the goods. Stellar PLC estimates there is a high degree of uncertainty regarding acceptance.

   • Included in revenue is a deposit of €10,000 received from a customer on 1 December 2023 for a custom machine that will be delivered and installed in February 2024. The performance obligation has not yet been satisfied.

     
     

5. Rent Expense: 

   • The company paid €24,000 for rent during the year, which was included in 'Administrative Expenses'. This payment covered the period from 1 April 2023 to 31 March 2024.

Required:

Prepare the following financial statements for Stellar PLC in accordance with International Financial Reporting Standards (IFRS):

1. A Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2023.

2. A Statement of Financial Position as at 31 December 2023.

(30 marks)

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Solution and Marking Scheme

Workings (W1-W7)

W1: Property, Plant, and Equipment (PPE)

	Land (€)	Buildings (€)	Plant & Machinery (€)	Total (€)
Cost / Valuation
Balance at 1 Jan 2023	200,000	400,000	150,000	750,000
Revaluation Surplus	-	20,000	-	20,000
Eliminate Acc. Dep.	-	(100,000)	-	(100,000)
Balance at 31 Dec 2023	200,000	320,000	150,000	670,000
Accumulated Depreciation
Balance at 1 Jan 2023	-	80,000	45,000	125,000
Depreciation for the year	-	20,000 (a)	21,000 (b)	41,000
Eliminated on Revaluation	-	(100,000)	-	(100,000)
Balance at 31 Dec 2023	-	-	66,000	66,000
Carrying Amount at 31 Dec 2023	200,000	320,000	84,000	604,000

• (a) Building Depreciation: 5% * €400,000 = €20,000.

• Carrying amount before revaluation = €400,000 - (€80,000 + €20,000) = €300,000.

• Revalued amount = €320,000.

• Revaluation Surplus (OCI) = €320,000 - €300,000 = €20,000.

• (b) Plant & Machinery Depreciation: 20% * (€150,000 - €45,000) = €21,000.

• Total Depreciation Expense: €20,000 + €21,000 = €41,000.

W2: Inventory

	€
Closing inventory per trial balance	115,000
Add: Goods on sale or return (W4)	8,000
Less: NRV write-down (a)	(5,000)
Adjusted Inventory	118,000

• (a) NRV Adjustment: Cost = €15,000. NRV = €11,000 (selling price) - €1,000 (costs) = €10,000. Write-down = €15,000 - €10,000 = €5,000. This is charged to Cost of Sales.

W3: Trade Receivables

	€
Per trial balance	160,000
Less: Sale on approval reversal (W4)	(12,000)
Less: Irrecoverable debt write-off	(4,000)
Balance for provision calculation	144,000
Less: New Provision for doubtful debts (5% * 144,000)	(7,200)
Net Trade Receivables	136,800

W4: Doubtful Debt Expense

	€
Irrecoverable debt	4,000
Increase in provision (€7,200 - €5,000)	2,200
Total Expense for P/L	6,200

W5: Revenue & Cost of Sales Adjustment (Sale on Approval)

• Revenue: Must be reduced by €12,000 as control has not transferred. Adjusted Revenue = €1,250,000 - €12,000 = €1,238,000.

• Cost of Sales: The cost of goods (€8,000) was included in Cost of Sales but should be in inventory. Adjusted Cost of Sales = €720,000 - €8,000 = €712,000.

• This also affects Trade Receivables (reduced by €12,000, see W3) and Inventory (increased by €8,000, see W2).

  
  

W6: Rent Prepayment

• Total rent paid = €24,000 for 12 months. Monthly rent = €2,000.

• The payment covers 9 months in 2023 (Apr-Dec) and 3 months in 2024 (Jan-Mar).

• Rent expense for 2023 = 9 * €2,000 = €18,000.

• Prepayment (asset) = 3 * €2,000 = €6,000.

• Adjustment to Administrative Expenses = €24,000 (paid) - €18,000 (expense) = €6,000 reduction.

  
  

W7: Deferred Revenue

• Revenue includes €10,000 for which the performance obligation is not met.

• This must be removed from revenue and shown as a current liability (Deferred Revenue).

• Final Adjusted Revenue = €1,238,000 (from W5) - €10,000 = €1,228,000.

(a) Stellar PLC - Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2023

	€	€
Revenue (1,250,000 - 12,000 - 10,000)		1,228,000
Cost of Sales (720,000 - 8,000 + 5,000)		(717,000)
Gross Profit		511,000
Operating Expenses
Administrative Expenses (185,000 + 41,000 (W1) - 6,000 (W6))	(220,000)
Distribution Costs (95,000 + 6,200 (W4))	(101,200)
Profit from Operations		189,800
Finance Costs (5% * 150,000)		(7,500)
Profit Before Tax		182,300
Income Tax Expense		-
Profit for the Year		182,300
Other Comprehensive Income:
Items that will not be reclassified to profit or loss:
Revaluation Surplus on Buildings (W1)		20,000
Total Comprehensive Income for the Year		202,300

(b) Stellar PLC - Statement of Financial Position

As at 31 December 2023

	€	€
ASSETS
Non-current Assets
Property, Plant, and Equipment (W1)		604,000
Current Assets
Inventory (W2)	118,000
Trade Receivables (W3)	136,800
Prepayments (W6)	6,000
Bank	42,000
Total Current Assets		302,800
Total Assets		906,800
EQUITY AND LIABILITIES
Equity
Share Capital	300,000
Revaluation Surplus	20,000
Retained Earnings (113,000 + 182,300)	295,300
Total Equity		615,300
Non-current Liabilities
5% Bank Loan		150,000
Current Liabilities
Trade Payables	124,000
Deferred Revenue (W7)	10,000
Accrued Interest (Finance cost)	7,500
Total Current Liabilities		141,500
Total Liabilities		291,500
Total Equity and Liabilities		906,800

Marking Scheme (Total 30 Marks)

• Statement of Profit or Loss (15 marks) 

  • Revenue (4 marks for both adjustments)

  • Cost of Sales (2 marks for both adjustments)

  • Gross Profit (1 mark)

  • Administrative Expenses (2 marks for depreciation and prepayment)

  • Distribution Costs (2 marks for bad/doubtful debts)

  • Finance Costs (1 mark)

  • Profit for the Year (1 mark)

  • Other Comprehensive Income - Revaluation Surplus (1 mark)

  • Format and presentation (balance marks)

• Statement of Financial Position (15 marks) 

  • Property, Plant, and Equipment (3 marks for correct final figure, linked to W1)

  • Inventory (2 marks for both adjustments)

  • Trade Receivables (2 marks for correct net figure)

  • Prepayments (1 mark)

  • Retained Earnings (1 mark for opening balance + profit)

  • Revaluation Surplus (1 mark)

  • Deferred Revenue (1 mark)

  • Accrued Interest (1 mark)

  • Format and presentation (balance marks)